Consumption amounts to 70 percent of the economy, so getting the
basic facts right about consumption and savings is pretty central
to understanding the economy. That's why it is pretty incredible
that the Post told readers today:

"Households began squirreling away cash in the midst of the
recession. The savings rate, which was at 1 percent in 2005,
generally fluctuated between 5 percent and 6 percent
during the recent recession. This year it has hovered around
4 percent, still above historical norms."

No, this is not true. The saving rate actually averaged above 8.0
percent through most of the post-war period. It began to fall in
the late 80s when the wealth created by the stock market run-up
led to more consumption. It fell as low as 2.0 percent in 2000 at
the peak of the stock bubble. It then fell even lower at the
peaks of the housing bubble in the last decade. While the saving
rate has risen from its bubble driven lows, it is still well
below historical norms. (Adjusted savings uses an adjustment to
disposable income based on the statistical discrepancy.)

Source: Bureau of Economic Analysis.

The piece also badly misleads readers when it reports:

"the average household approaching retirement had only $120,000
in 401(k) or individual retirement account holdings in 2010,
roughly the same as in 2007. That balance translates to about
$575 in monthly income."

This figure refers to the average holding among the group that
has a 401(k) account. In fact, close to half of those near
retirement have no account at all. Furthermore the holdings of
the typical household even among with retirement accounts is far
below the average.

An analysis by the Pew Research Center found that the typical household approaching
retirement had just 164,000 in total wealth. This counts equity
in their home, which is by the largest source of wealth for most
middle income families. Since the price of the median home is
slightly over $180,000, the Pew finding means that the median
household approaching retirement has roughly enough money to pay
off the mortgage on their house and then would be completely
dependent on their Social Security benefits for income in
retirement. The Post's discussion would have grossly misled
readers into thinking that the typical household approaching
retirement could anticipate substantial non-Social Security
income.

Wary Americans saving more, even as government encourages risk

Flickr user kenteegardin - Americans, wounded by the financial
crisis and scared by an uncertain job market, don’t want to take
any risks with their money at the exact moment when the
government is encouraging risk-taking.

Americans have poured record amounts of money into savings
accounts even though interest rates are at historic lows, new
federal data show, a sign that average people may be missing out
on a booming stock market and recovering real estate sector.

The total amount in those accounts climbed nearly 5 percent
to $6.9 trillion in the spring, the highest level recorded since the Federal Reserve launched its regular reports
on the flow of money in the economy in 1945. At the same time,
other data show that Americans are fleeing the stock market and
avoiding the purchase of new homes.

A new economic study looks at how much the "revolving door" is
worth to companies. Defense firms that see their executives
tapped for top government jobs immediately see an abnormally
large boost in their stock price.

The pattern suggests that Americans, wounded by the financial
crisis and scared by an uncertain job market, do not want to take
any risks with their money — even as the government is
encouraging risk-taking.

The Fed recently announced an unprecedented plan to pump
hundreds of billions of dollars into the financial markets to
reduce interest rates, which should have the effect of boosting
stock prices and making it cheaper to buy homes.

But if consumers remain on the sidelines, it means the policies
may benefit only the most well off and secure — and fail to help
average Americans or the broader economy.

“People have lost their appetite for risk,” said Karen Dynan,
co-director of the economic studies program at the Brookings
Institution. “They’ve been burned by the stock market. They’ve
suffered through capital losses on their homes. And so they’re
hunkering down in what they view as the safest place to store
money.”

“My colleagues and I know that people who rely on investments
that pay a fixed interest rate, such as certificates of deposit,
are receiving very low returns, a situation that has involved
significant hardship for some,” he said in a speech Monday. “Only a strong
economy can create . . . sustainably good returns for savers.”

The mattress trap

Households began squirreling away cash in the midst of the
recession. The savings rate, which was at 1 percent in 2005,
generally fluctuated between 5 percent and 6 percent
during the recent recession. This year it has hovered around
4 percent, still above historical norms.